NY Regulators Propose No Fault Insurance Reform

The New York State Insurance Department is proposing new regulations for no-fault auto insurance coverage in the state. The move is touted as a countermeasure to fight back against the rising tide of insurance fraud in recent years, especially among those with no-fault policies. According to New York Insurance Superintendent James Wrynn, the average cost of each no-fault claim in New York has gone up by more than 50 percent in the past five years. He says that all New Yorkers who carry auto insurance coverage are paying the price for acts of fraud in the form of higher rates for coverage [1].

Overview of Proposed Changes in NY No Fault Regulation

The new regulations proposed would include a requirement for more information on medical forms filled out by claimants, to make it more difficult to file fraudulent claims; and a scaled-back stipulation for insurance provider verification, a move designed to speed up the claims process. They would also give insurance providers more power to choose to deny payment for services that are not rendered or invoiced in a manner consistent with the appropriate fee schedule related to the service in question. An additional provision of the proposed regulations would empower providers to stop payments to clinics suspected of fraud [1].

Under Wrynn's proposed regulatory changes, companies would be forced to schedule medical exams in a way that is more convenient and less of a burden to policy holders. One example of such a change would be not allowing the scheduling of two different exams on the same day, or limits on exams scheduled at locations far from a policy holder's home address. Other proposed changes would require action by the New York state legislature, according to Wrynn. They include changing a rule currently in force which requires automatic payment of any claim not denied within 30 days, regardless of its legitimacy. Under the current setup, even claims which are known to be fraudulent must be paid after the 30 day window has passed. This particular rule in the no-fault law has long been suspected of encouraging insurance fraud [2].

The regulations proposed by Wrynn came after comments by Robert Hartwig, who is the president of the Insurance Information Institute (III) during a meeting of the New York Insurance Association. Hartwig challenged New York state legislators to come up with a way to curtail no-fault fraud, which he said is rampant across the state, attributable to high monetary limits and poor control mechanisms. The combination of the two, Hartwig argued, has created an environment all-too-inviting for abuse by the unscrupulous.

Many in New York believe that no-fault insurance fraud is an ever-growing problem, something that needs to be addressed legislatively as soon as possible. The rate of no-fault fraud complaints and arrests have both been on the rise in recent years, and the Property Casual Insurers Association of America (PCI) estimates that no-fault fraud costs licensed New Yorkers carrying auto insurance plans $1.2 million per day [1].

Industry Leaders Open to Idea of No Fault Reform

PCI is encouraged by the Insurance Superintendent's message and by his efforts to promote no-fault reform to help curb fraud. Paul Mageril, regional manager for PCI, said in a statement, "In these days of tight budgets and economic uncertainty, consumers will benefit from regulations and legislation that reign in the fraud and abuse of the no-fault system" [2].

Under New York's current no-fault auto insurance system, the number of disputed claims filed by health service providers that end up in the courts has increased substantially, leading to both a backlog of claims with slow resolution, and many payments made for unnecessary claims. Both of these consequences of the increase in disputed claims end up directly resulting in higher rates for coverage due to the increase in costs borne by insurance companies in payouts and in legal fees.

What is No Fault Auto Insurance?

No-fault automobile insurance, which has been in effect in New York State since 1974, allows accident victims to collect monies directly from insurance companies to defray costs associated with medical and hospital expenses and lost wages, regardless of who was at fault in the accident [3]. Generally speaking, no-fault car insurance, also called personal injury protection or PIP, calls for the insurer to pay for a car accident victim's economic losses, which can include things like medical expenses or lost wages, or even burial expenses. Non-economic losses, such as pain and suffering and emotional distress, are generally not covered under no-fault law [4].

The no-fault auto insurance system was designed primarily to reduce the workload and economic cost of court battles often required to determine who is at fault and to what degree in an auto accident. Thirteen states in the U.S. are currently no-fault states: Colorado, Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah. In the no-fault system, the insurer automatically pays for your economic losses related to an auto accident up to the policy maximum. In exchange for what amounts to guaranteed payment in the event of an accident leading to economic loss, policy holders forfeit much of their ability to sue the other driver involved in the accident [5].

The no-fault auto insurance system was designed to reduce auto insurance policy premiums. In theory, it accomplishes this in three ways: by reducing the number of car accident cases in the courts; by placing a cap on the payment of pain and suffering damages; and by providing only limited payment for economic losses [5]. In reality, however, many no-fault states have much higher average car insurance rates than the national average, including New York, which is in the top five nationwide. New York's particular brand of no-fault insurance law seems to contain too many loopholes that are easy to abuse. And though one of the benefits of no-fault law is supposed to be a reduction in court battles, in most no-fault states the courts are still often tied up with car insurance litigation, often pitting policy holders against auto insurance providers for non-payment of no-fault compensation following an accident claim.

In general, New York is one of the most expensive places to live in America. The cost of living is notoriously high, especially in New York City, and issues like rampant no-fault fraud driving up the cost of car insurance for state residents just make matters worse. No-fault auto insurance law was a concept meant to promote savings for policy holders and insurers alike, and to save the courts from being bogged down with auto insurance lawsuits. Clearly, this is not the case in New York.

Regulators in the Empire State, such as Superintendent Wrynn, appear to have the right idea as they seek to find ways to improve New York's no fault system by making it more impervious to fraud. Whether the changes they propose will have a substantial positive effect remains to be seen. In the meantime, insurance experts in no-fault states around the country are looking on with interest to see how this situation plays out.